The full-year cash profit from continuing operations of Australia and New Zealand Banking Group Limited (ASX: ANZ) plunged by 5% to $6.49 billion in FY 2018 against the cash profit of FY 2017, driven by the increased customer compensation and remediation cost. The EPS of ANZ reduced by 4% to 223.4 cents and the Dividend Per Share was flat at 160 cents in FY18.
In FY18, due to the slow growth in housing and decreased borrowing capacity, the retail banking in Australia experienced strong headwinds. However, the group was able to maintain its disciplined approach to home loan growth by targeting customers who want to buy and own their own home. And in order to do so, the banking group sacrificed its short-term revenue growth and higher margins, but as per ANZ’s CEO Mr. Shayne Elliott it was the right thing to do for ANZ’s shareholders.
The Group’s cash profit including discontinued operations decreased by 16% over the year ended September 30, 2018. The net interest income decreased by 2% over the year, and operating income plunged by 3% to $19.2 billion. The Operating expenses increased by 3% to $9.2 billion in FY 2018 due to the increased customer compensation and remediation costs.
However, the Group maintained a strong capital position with CET ratio of 11.4 percent in FY 2018. ANZ’s Management accepted the significant community concerns which were raised by the Royal Commission, due to which, the Group has reduced the variable remuneration paid to its staff by $124 million. ANZ is undertaking some immediate steps to fix the problems and concerns which were highlighted by the Royal Commission and it is increasing its focus on the conduct issue.
The group also implemented a significant package to help its customers which were impacted by the recent drought in Australia. The banking group reduced the rates on business loans by 1 percent in all drought areas and set aside $130m for discounted loans. Under the implementation of ANZ’s strategy regarding the simplification of ANZ’s business, the banking group announced the sale of ANZ New Zealand’s life insurance business for NZ$700m. Further, it also announced the sale of ANZ’s retail and commercial business in PNG and ANZ’s Joint-Venture in Cambodia.
It is expected that ANZ will witness rough revenue growth environment in retail banking in Australia and it will continue for the foreseeable future, however, the Banking group is all prepared to take advantage of growth opportunities in Institutional, Asia and New Zealand. The board declared a dividend of 80 cents per share, fully franked, bringing the Full Year Dividend to 160 Cents.
In the last six months, the share price of the Group decreased by 5.90 percent as on 1 November 2018, traded at a PE level of 11.670x. ANZ’s shares traded at $25.430 (-1.625% intraday) with a market capitalization of $74.28 billion as on 2 November 2018 (AEST 4:00 PM).
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